When you think about innovation and the market-moving solutions of the past century, what do you think of? IRAs, Roth IRAs, Exchange Traded Funds and mutual funds are all great examples of innovations that have truly changed how people invest. What mutual funds did for the accumulators years ago, indexed annuities are about to do for retirees. Indexed annuities are creating a marketplace for products that offer baby boomers safety, lifetime income, potential for attractive returns in a low interest-rate environment and death benefits.
Part 1: Annuities go with the flow
In a recent nationwide poll 75 percent of baby boomers said that they were worried about inflation, or the fact that prices will rise faster than their income. A colossal 73 percent were also worried about not having financial security in retirement, and—as stated in my previous article—over half of all baby boomers have had to delay retiring because of these discouraging facts. Sadly, these numbers should not be very surprising so anyone; baby boomers have had to endure market loss of 50 percent on two separate occasions over the past decade. What might surprise you is the lack of knowledge that is out there in regards to annuities.
Gary and Betty
In 2008 my office took a call from prospective clients named Gary and Betty who had been referred to us by current clients. If you remember one thing from this article, it should be Gary and Betty’s story. Gary had retired in 2006 and had simply rolled all of his company investments from a 401(k) to his financial advisor. Gary had been working with his advisor for years and the advisor seemed to have done a decent job in growing their nest egg. Gary and Betty were in their 60s and had explained to their advisor that they needed about $3,000 a month from their investments to supplement the Social Security they were collecting. Gary had worked hard and had saved about $800,000 in his various company-sponsored retirement plans. The advisor explained to them that taking 4 percent to 5 percent out of the account’s value would not be a problem; in fact, it would be easy since the markets had been returned about 9 percent for the past 100 years.